unit 5

well-being of an average resident in a country. It comprises of 2 aspects, material well being and non-material well being

quantity of good and services enjoyed by an individual

quality of life enjoyed by an individual

monetary value of final goods and services produced within the geographical boundaries of a country over a year

GDP plus factor incomes earned by residents overseas minus factor incomes earned by non-resident in the domestic economy.

1. Percentage change in real GDP/capita is used to measure economic growth more accurately

2. Higher nominal GDP not mean that more goods and services are produced and higher mSoL. For e.g., if nominal GDP increase by 3 % but GPL increase by 5%. This means that real GDP has fallen instead of increasing. Hence real GDP/capita is more accurate to measure SoL.

3. It accounts for population size changes. For e.g. if real GDP x2, while population more than double, this means that real GDP/capita has fallen and one cannnot conclude that the economy is performing well by using GDP. In this case, the amount of good and services available to each individual is less than before and average mSoL falls.

Income distribution is not accounted

1. Real GDP/capita is just an arithmetic average. Hence, growth is not inclusive as the rich can become richer and the poor get poorer. This is because owners of businesses and resources can earn more factor income from increase in GPL

2. Widening income gap can arise from displacement of low-skilled workers as the country embraces technology-led growth. The rising demand for high-skilled workers increases their wages while the falling demand for low-skilled workers decreases their wages, widening income gap.

1. measures the extent to which income distribution among individuals with the economy deviates from a perfect equal distribution

2. The value of 0 represents perfect income equality while the value of 1 represents perfect income inequality. The greater the value, the greater the income inequality.

3. This means that the majority may have a lower SoL than the minority. Hence, gini coefficient indicates to the government whether growth is inclusive in raising SoL for the majority.

1. the most common measurement to compare SoL between countries is real GDP/capita in terms of a common currency. Even if a country has higher real GDP/capita, it does not mean that it enjoys a higher SoL. This is because very often, the official exchange rate is overvalued or undervalued due to several reasons. Also, real GDP/capita does not account for differences in cost of living between countries.

2. Countries with similar real GDP per capita may still have very different SoL if their income distribution is different. For example, a country with lower real GDP/capita and fairer income distribution enjoys a higher overall SoL as compared to a country with higher real GDP/capita but uneven income distribution. This is because for the latter country, the minority that is rich is so rich that it pulls the average up, and make the real GDP/capita higher than countries with fairer income distribution.

1. It is a summary of average achievement in 3 key dimensions — a long and healthy life, being more knowledgeable and having. decent SoL.

   Health is assesssed by life expectancy at birth, education is assessed by mean of years of schooling for adults aged 25 and above and expected years of schooling for children of school entering age

2. It is expressed between 0 and 1, with 1 being the highest possible score and 0 being the lowest possible score. A higher HDI indicates good healthcare system, widely-available education and a productive economy

Not a complete measure of welfare as it does not account for quality of education, inequality, social and economic freedom

total output of gds and svcs produced by an economy for a given GPL

total demand of gds and svcs by an economy for a given GPL

total spending by households on consumer goods such as household appliances and clothing

spending made by firms on capital goods ( gds not meant of current consumption but for future production) such as fixed capital stocks (factories, machinery) and net additions to stock ( raw materials, unsold goods)

1. quantity of resources —> increase productive capacity

2. quality of resources —> investment in edu and training

3. change in tech. —> produce larger volume with the same quantity of scare resources

change in unit COP —> increase firms’ willingness and ability to produce more

1. income

2. tax

3. credit ( if banking i/r increase, decrease c on big-tix, if saving i/r increase, decrease c as opp cost of spending is higher)

4. consumer confidence

5. expected future px

6. change in tech

7. demographics (elderly spend more)

1. Interest rate is the cost of borrowing money. i/r is inversely related to volume of investment. lower i/r means lower cost of borrowing $ to finance their investment. Hence, projects with lower expected returns now appear profitable. profit-motivated firms will invest more

2. business confidence

3. change in tech. decrease COP of firms, improve quality of products, increase dd for gds